HOA - ALJDEC decisions

24F-H024-REL · Department of Real Estate - H/C · 2024-05-19

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Jeffrey Connell & Corey Cox,

Petitioners,

Casa Del Monte, Inc.

Respondent.

No. 24F-H024-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: March 20, 2024 at 9:00 AM.

APPEARANCES: Ross Meyer, Esq. appeared on behalf of Jeffrey Connell (“Petitioner Connell”) and Corey Cox (“Petitioner Cox”) (jointly as “Petitioners”) with Petitioners and Jonathan Dessaules, Esq. as witnesses. Solomon Krotzer, Esq. appeared on behalf of Casa Del Monte, Inc. (“Respondent” and “Association”) with Mary Lou Ehmann and Jonathan Ryder as witnesses.

ADMINISTRATIVE LAW JUDGE: Jenna Clark.

EXHIBITS ADMITTED INTO EVIDENCE: The Notice of Hearing, including the attached agency file from the Arizona Department of Real Estate (“Department”), was admitted into the record along with Petitioners’ Prehearing Memorandum, Petitioners’ Exhibits 1-7, Respondent’s Exhibits A-G, and Minute Entry – Granting Continuance issued January 29, 2024.

_____________________________________________________________________

After review of the hearing record in this matter, the undersigned Administrative Law Judge makes the following Findings of Fact and Conclusions of Law, and issues this Order to the Commissioner of the Arizona Department of Real Estate (“Department”).

FINDINGS OF FACT

Background and Procedure

The Department is authorized by statute to receive and to decide petitions for hearings from members of homeowners’ associations and from homeowners’ associations in Arizona.

On or about November 01, 2023, Petitioners filed a single-issue petition with the Department which alleged that the Association violated Arizona Revised Statute (“Ariz. Rev. Stat.”) § 33-1248 by holding a Board meeting in closed session without providing 48-hour notice to its members. Specifically, Petitioners alleged that a Board Meeting agenda, for a meeting scheduled May 19, 2023, included review of a Code of Conduct but did not identify that discussion would be held in closed session amongst the Board. During a closed session of the May 19, 2023, Board Meeting, Counsel for the Association “strongly encouraged and insisted” that Board Members sign the Code of Conduct. At that time it was also represented to Petitioner Connell that all other incumbent Board Members had already signed the document. A resolution requiring Board Member signage was not provided to Petitioners. During the same closed session the Board also voted to adopt meeting minutes from its April 07, 2023, Board Meeting. Ultimately, Petitioners sought an Order compelling Respondent to comply with the aforementioned statute.

On or about December 19, 2023, Respondent returned its Answer to the Department whereby it denied all complaint items in the petition.

Per the Notice of Hearing, the Department referred this matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing on February 15, 2024, regarding the following issue:

Whether Respondent has “repeatedly violated” ARS § 33-1248 at an Executive Board Meeting on May 19, 2023 by failing to provide a Notice of Meeting within 48 hours, and by voting in an executive session as a topic in a closed meeting. [sic]

The Parties and Governing Documents

Respondent is a homeowners’ association whose members own properties in a residential real estate development located in Scottsdale, Arizona. Membership for the Association is compromised of the Casa Del Monte subdivision.

Petitioners are Casa Del Monte subdivision property owners, individually, and members of the Association.

The Association is governed by its Covenants, Conditions, and Restrictions (“CC&Rs”) and overseen by a Board of Directors (“the Board”). The CC&Rs empower the Association to control certain aspects of property use within the development. When a party buys a residential unit in the development, the party receives a copy of the CC&Rs and agrees to be bound by their terms. Thus, the CC&Rs form an enforceable contract between the Association and each property owner.

Hearing Evidence

Petitioner Connell, Petitioner Cox, and Jonathan Dessaules, Esq. testified on behalf of Petitioners. Mary Lou Ehmann and Jonathan Ryder testified on behalf of Respondent. The substantive evidence of record is as follows:

On April 18, 2023, Petitioner Connell and Petitioner Cox were elected by Members to serve a 3-year term on the Board of Directors.

Petitioner Connell ran for election became concerned with some of the Board’s actions and became involved with other community members on an email chain seeking changes to the community.

Petitioner Cox ran for election because she had concerns over the Association’s maintenance budget and the Board’s intention to enter a two million dollar ($2,000,000.00) loan, without any indication the Association’s maintenance issues would be resolved.

After Petitioners were elected, they opined amongst themselves that the Board had begun to act with less transparency by discussing public matters in closed Executive Sessions.

On or about April 20, 2023, Petitioners were advised that a Board Member training session would be held for them by Counsel for the Association. On May 06, 2023, Mr. Ryder clarified to Petitioners that their “new member orientation” would be contemporaneously held in Executive Session with all remaining Board Members, and that Counsel for the Association would discuss legal issues therein.

The May 19, 2023, Board Meeting agenda contained two agenda items under the Legal subsection: (a) Discussion with counsel, and (b) Code of Conduct. Board Members were provided an Executive Report prior to the meeting, including the aforementioned Code of Conduct for review.

The Executive Report has a subject titled, Amending Association Documents, whereby Counsel for the Association notes inclusion of a flyer from Mulcahy Law Firm, which contains general information about amending Association documents for “educational purposes.”

The proposed Code of Conduct includes, “The Board of Directors has approved the following code of conduct for its members in order to guide and maintain a high standard of ethical conduct in the performance of Association business, and to ensure that the residents maintain confidence in and respect for the entire Board.”

The Mulcahy Law Firm was not present at the May 19, 2023, Board Meeting. The Board did not consider or discuss retaining the firm for legal representation.

Once the Code of Conduct was raised for discussion during the Executive Session of the May 19, 2023, Board Meeting, Board Members B.M. and J.Y. told Petitioner Connell that they had already signed the document. Per Petitioners’ testimonies, both were strongly encouraged or otherwise recommended to sign the Code of Conduct by Counsel for the Association. Both declined, choosing not to take his advice. As a result, the Code of Conduct was not adopted by the Board.

Additional Evidence

Mr. Ryder testified that Respondent always planned to discuss the Code of Conduct at a later open meeting, but it never occurred because the Board of Directors rejected it.

Closing Arguments

In closing, Respondent argued that the May 19, 2023, Board Meeting was moved into Executive Session for the purpose of receiving legal advice from Counsel for the Association, which occurred. Per Respondent, Counsel for the Association answered Board Members’ questions about the Code of Conduct, and made recommendations regarding whether it should be adopted via Board Member signature.

In closing Petitioners argued that Counsel for the Association did not offer legal advice of any kind regarding the Code of Conduct during the Executive Session held during the May 19, 2023 Board Meeting, as evidence by the fact that Board Members B.M. and J.Y. had already signed it. Per Petitioners, there was no basis to hold an Executive Session to discuss a general document like the Code of Conduct, or pamphlet printout from a law firm’s public website. Petitioners further argued that evidence demonstrated that the Board attempted to discuss improper matters in Executive Session in an attempt to coerce Petitioners to sign the Code of Conduct outside of an open meeting.

Conclusions of Law

This matter lies within the Department’s jurisdiction pursuant to Ariz. Rev. Stat. §§ 32-2102 and 32-2199 et seq., regarding a dispute between an owner and a condominium and/or planned community association. The owner or association may petition the department for a hearing concerning violations of community documents or violations of the statutes that regulate planned communities as long as the petitioner has filed a petition with the department and paid a filing fee as outlined in Ariz. Rev. Stat. § 32-2199.05.

Planned Communities are regulated by Ariz. Rev. Stat. Title 33, Chapter 16, Article 1.

Pursuant to Ariz. Rev. Stat. §§ 32-2199(2), 32-2199.01(A), 32-2199.01(D), 32-2199.02, and 41-1092 et seq. OAH has the authority to hear and decide the contested case at bar. OAH has the authority to interpret the contract between the parties.

In this proceeding, Petitioner bears the burden of proving by a preponderance of the evidence that Respondent committed the alleged statutory violation.

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”

Ariz. Rev. Stat. § 33-1248(A)(1) provides, in pertinent part, that “Any portion of a meeting may be closed only if that portion of the meeting is limited to consideration of one or more of the following: (1) legal advice from an attorney for the board or the association.”

The definition of legal advice is “guidance given by lawyers to their clients.”

Because Petitioners only paid for the adjudication of one (1) issue, this Tribunal may not address all of the tangential issues Petitioners raised during the presentation of their case or closing arguments, including whether the Association properly provided notice of its May 19, 2023, Board Meeting. Therefore, the only issue to be addressed in this matter is whether Respondent committed a violation of Ariz. Rev. Stat. § 33-1248.

Based upon a review of the credible and relevant evidence in the record, Petitioners have not sustained their burden of proof.

Here, the material facts are clear. It is clear from the record that the Board provided advanced notice to its Directors that it intended to go into Executive Session during its May 19, 2023, meeting to discuss the adoption of a Code of Conduct, and that if most or all Directors were in agreement with adoption that the issue would be placed on an Agenda for public discussion for all Members of the Association. This is evidenced by the fact that incumbent members were already privy to the issue, some members had signed the document, and Petitioners declined to sign though encouraged by Counsel for the Association. The fact that language in the proposal used current language, rather than future tense, is a Red Herring argument and irrelevant. Also irrelevant is the quantity and/or quality of advice given by Counsel for the Association during said Executive Session. The crux of the underlying issue is that newly elected Board Members, Petitioners, were provided with information regarding the Code of Conduct, the opportunity to discuss and ask questions privately, and advised to sign by Counsel for the Association; which they declined as was their right.

While it is accurate that going into Executive Session for the purpose of discussing reading materials printed from a public website regarding revision of Association’s governing documents is not technically legal advice, as it is inherently unprivileged documentation, this record reflects that this was not the sole purpose of closing the Board Meeting from the public. Moreover, the record further reflects that a substantive discussion regarding Mulcahy Law Firm documents or information did not occur on May 19, 2023.

Therefore, the undersigned Administrative Law Judge concludes that because Petitioners failed to establish Respondent’s alleged violation(s) of Ariz. Rev. Stat. § 33-1248 their petition must be denied.

FINAL ORDER

Based on the foregoing,

IT IS ORDERED that Petitioners’ petition be denied.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be five days from the date of that certification.

NOTICE

Pursuant to Ariz. Rev. Stat. §32-2199.02(B), this Order is binding on the parties unless a rehearing is granted pursuant to Ariz. Rev. Stat. § 32-2199.04. Pursuant to Ariz. Rev. Stat. § 41-1092.09, a request for rehearing in this matter must be filed with the Commissioner of the Arizona Department of Real Estate within 30 days of the service of this Order upon the parties.

Done this day, May 20, 2024.

Office of Administrative Hearings

/s/ Jenna Clark

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile to:

Susan Nicolson, Commissioner

Arizona Department of Real Estate

100 N. 15th Ave, Ste. 201

Phoenix, AZ 85007

[email redacted]

Ross Meyer, Esq.

Matthew Elias, Esq.

Enara Law PLLC, Counsel for Petitioners

7631 E. Greenway Rd., Ste. B-2

Scottsdale, AZ 85260

[email redacted]

Lori N. Brown, Esq.

Solomon Krotzer, Esq.

Gordon Rees Scully Mansukahani, LLP, Counsel for Respondent

2 N. Central Ave, Ste. 2200

Phoenix, AZ 85004

[email redacted]

By: OAH Staff